Why the U.S.-Iran Conflict Is Now Coming to a Head
(Bloomberg) -- In 2015, Iran agreed to limit its nuclear program, bowing to harsh sanctions imposed by countries worried it was developing an atomic bomb. For the past year, it’s continued to abide by the restrictions despite U.S. President Donald Trump’s decision to withdraw from the accord and reimpose U.S. sanctions. Now Iran has threatened to walk away from the deal and has accelerated the rate at which it’s enriching low-grade uranium four-fold to emphasize the point. In and around Iran, tensions are mounting as the U.S. and its ally Saudi Arabia warn of Iranian mischief and the U.S. beefs up military forces.
1. What provoked Iran’s moves?
The U.S. stepped up its economic pressure on Iran in early May by allowing the expiration of waivers that had permitted eight governments to buy Iranian oil. The Trump administration’s aim is to drive Iran’s oil exports, which account for almost half of the country’s sales abroad, to zero. Already, U.S. sanctions have pushed Iran’s economy into recession, with the International Monetary Fund predicting a 6% contraction this year after 4% last year. The downturn is an embarrassment for President Hassan Rouhani, who championed the nuclear deal as a way to end Iran’s isolation and revive its economy. Rouhani is now asking for his government to be given more powers to push back against the “economic war” the U.S. is waging.
2. What’s enriching uranium got to do with the economy?
Nothing, directly. Iran is boosting enrichment -- though crucially not beyond the agreed limit -- as a way to push the European parties to the nuclear deal to do something to relieve the effects of the U.S. sanctions. Those parties -- France, Germany, the U.K. and the European Union -- share the desire to restrain Iran’s nuclear activities and to do so through dialogue. Also, Iran considers the limitations on its nuclear program a constraint on its sovereign rights, though it has always denied pursuing a nuclear weapon. It was willing to go along with the restrictions in exchange for sanctions relief, but the U.S. withdrawal left Iranians feeling they’d been duped.
3. How does the U.S. stop others from trading with Iran?
As with other sanctions campaigns, U.S. leverage rests with the central role American banks -- and the U.S. dollar -- play in the global economy. Any country, company or bank that violates the terms of the U.S. sanctions could see its U.S.-based assets blocked or lose the ability to move money to or through accounts held in the U.S. In essence, the Trump administration has bet that nations, banks and businesses worldwide would rather do business with the U.S. than Iran, a wager that has proven correct as major European companies have mostly stayed away.
4. What have European countries proposed to do about that?
European signatories devised a special mechanism to facilitate trade with Iran that would circumvent a global financial system that is largely dominated by the U.S. The idea basically comes down to using a barter system in which Iran would accrue credits for its exports to Europe which it could then use to purchase goods from European businesses. But Instex, as the vehicle is known, isn’t yet fully operational and would likely offer only limited relief. Iran has said that if the Europeans can’t find a way to ease its economic isolation by early July, it will abandon limits on uranium enrichment, shortening the time the country would need to accumulate sufficient material for a nuclear bomb.
5. What mischief does the U.S. accuse Iran of?
The U.S. has dispatched an aircraft carrier and bomber jets to the Persian Gulf and withdrawn some diplomatic personnel from Iraq after saying intelligence showed a growing threat toward U.S. forces or commercial shipping by Iran or allied forces. After a security briefing, U.S. Senator Lindsey Graham claimed that Iran was behind recent attacks on Saudi Arabian and other oil tankers as they approached the strategic Strait of Hormuz, although other senators disagreed with his reading of the intelligence. The Saudis blame Iran for drone attacks on two Saudi pumping stations along a cross-country oil pipeline. Houthi rebels fighting a civil war in Yemen who are backed by Iran claimed responsibility for the strikes.
6. What’s at stake in the conflict?
The stability of the Middle East. European officials frequently cite their inability to prevent U.S. President George W. Bush’s administration from starting the Iraq war in 2003 as a key reason for trying to salvage the Iran deal. The U.S. and Iran are still far from declaring war on each other. But Trump has warned that if Iran “wants to fight, that will be the official end of Iran.” The commander of Iran’s powerful Revolutionary Guards Corps said his country isn’t looking for a war but isn’t afraid of a confrontation
The Reference Shelf
- Related QuickTakes on Iran’s nuclear program, what Europe can and cannot do to save the nuclear deal, and on the drone attacks on Saudi Arabia.
- An analysis of the implications of Iran’s threats by the Arms Control Association.
- A Congressional Research Service report on efforts by non-U.S. signatories to the Iran nuclear accord to preserve it.
- A Bloomberg Opinion article on Instex.
©2019 Bloomberg L.P.